Income Statement Analysis

A.Common-size Analysis

B.Horizontal Analysis

Perform Common-size analysis and horizontal analysis on income statements for all 3 companies. Submit your calculations and a written report

Chevron is main companny, andConoco Phhilips, Exxon Mobil are competitor companies.

Example is attached.

This should be 4~5 pages.(Written report)

IV. Income Statement Analysis Like the balance sheet analysis, the income statement analysis is valuable to businesses. The income statement is a major financial statement that shows the profitability of a company during a given time interval. The income statement allows the business to easily look at their revenues, expenses, gains, and losses. We will now take a closer look Wal-Mart's common-size income statement. According to the most recent 10k reports, Wal-Mart has continually increased their revenue. Their total revenue reported was $408,214 in 2010, $421,849 in 2011 and $446,950 in 2012. The revenue increased 3.34% from 2010 to 2011 and increased 5.95% from 2011 to 2012. The reason they could increase the revenue was the increase of net sales from 2010 to 2012. In both 2011 and 2012, Wal-Mart's net sales were very high which accounts for 99.31% of total revenue. Their cost of revenue reported $304,657 in year 2010, $315,287 in year 2011 $335,127. From 2010 to 2011, cost of revenue increased 3.49% and increased 6.30% from 2011 to 2012. Like the revenue, their gross profit also increased from these years. Their gross profit went from $103,557 in 2010 to $111,823 in 2012. Wal-Mart's operating income increased over the last three years. It was $23,950 in 2010, $25,542 in 2011 and $26,558 in 2012. The operating income has increased approximately $1,000 year by year. It was increase 6.45% from 2010 to 2011 and increase 3.98% from 2011 to 2012. Wal-Mart reported that the income before tax was increased from 2010 to 2012. From 2010 to 2011, 6.67% increased and 3.65% increased from 2011 to 2012. Their net income from the year 2010 to 2011 increased since the sum of net income from discontinued and continued operations reported $16,993 in 2011. However, the net income from 2011 to 2012 decreased because net income from discontinued and continued operations reported $16,387, which is lower than the amount reported in 2011. From 2010 to 2011, the total net income increased 14.33% or $16,389 while the total net income in 2012 reported $15,699 or a 4.21% decrease from 2011. Although there are many competitors such as Target and Costco, there is no doubt that WalMart is one of best corporations in regards to profitability. Over the years, Wal-Mart increased their revenue, net sales, operating income, etc. Next, we'll look at the common size income statement for Target. Their income statement shows that their total revenues have continued to increase over the years. The income statement analysis shows that Targets revenue increased 3.67% from 2010 to 2011 and 4.92% from 2011 to 2012. One factor for the increase from 2010 to 2012 would be from sales. Their revenue increased majorly over the course of three years. Target's total revenue went from $67,390 in 2010 to $73,301 in 2012. This increase shows one reason why Target has been a big competitor to Wal-Mart. Target's total operating income has almost remained the same over the past few years. In 2010 their operating income was $5,252, $5,322 in 2011, and $5,371 in 2012. That was only a 1.33% increase from the year 2010 to 2011 and a 0.92% increase from 2011 to 2012. Although, it has not changed much over the years, it still shows an increase, which is good for Target. Target's common size income statement shows that there was a 0.87% decrease in the income before tax from the years 2010 to 2011. In 2010 the income before tax shows to be $4,495 and $4,456 in 2011. It was a very slight decrease between the two years. However, from the year 2011 to 2012 there was a 3.43% increase in the income before tax. Target's income before tax was $4,609 which was better than 2011. Overall, the common size income statement for Target shows the company has increased over the past few years. This is important for investors looking to invest in Target. It also shows why Target has remained a great competitor of Wal-Mart. The common size income statement shows Target to be a healthy company and should continue to grow even more over the years. When analyzing a company's financial status, the income statement is simply a piece of a big picture. Without discounting this part completely, it is still a vital part of showing a company's performance. Whether a single step or multistep version of the income statement, the compiled information can be very useful to outsiders of the business. For an overall analysis, the multistep income statement proves to be more informative and beneficial than the single step format. The following data will give insight to Costco's financial situation over the last three years. Costco's income statement clearly shows increases on many levels from years 2010 to 2012. For analytical purposes, all figures are in the amounts of millions of dollars. From 2010 to 2012, net sales for Costco increased each year with numbers of $76,255, $87,048, and $97,062, respectively. From 2010 to 2011, net sales had a 14.15% change, and an 11.50% change from 2011 to 2012. This positive trend correlates with total revenues rising each year as well. In 2010, revenue is reported as $77, 946, $88,915 in 2011, and $99,137 in 2012. This data represents a 14.07% change from 2010 to 2011, and an 11.50% change from 2011 to 2012. Even though cost of goods sold has been increasing each year, revenues are clearly covering costs. Furthermore, deducting costs of goods sold from net sales, Costco shows that gross profit has continued to go up from 2010 to 2012. Gross profit went up from $9,951 to $11,176, and again to $12,314 last year. This denotes a 12.31% change from 2010 to 2011, and a 10.18% change from 2011 to 2012. Overall, with an increase in net sales and gross profit, Costco proves that they are doing well, not to mention membership fees constantly rising from year to year. Through further analysis, the income statement shows trends within the operating expenses and net income accounts. In the category of selling, general, and administrative expenses, there has been an increase from year to year. In 2010, these expenses were reported as $7,848, $8,691 in 2011, and $9,518 in 2012, all in the amounts of millions of dollars. With a company's growth and development, these figures accurately represent Costco's financial situation. Even with these expenses, along with preopening expenses, operating income has remained positive from 2010 to 2012. For instance, in years 2010 to 2011, operating income went from $2,077 to $2,439, marking a 17.43% change. From 2011 to 2012, operating income increased from $2,439 to $2,759, signifying a 13.12% change. There have been fluctuations in interest expenses and minority interest expenses; however, as of lately they have been dropping. Although taxes have continued to increase, Costco's overall net income is still rising from year to year. In 2010, their net income was $1,303, $1,462 in 2011, and $1,709 in 2012. As long as revenues are outweighing the expenses, Costco will continue to thrive as a company. In addition, with proven success, cash dividends declared per common share are increasing from years 2010 to 2012, with $.77, $.89, and $1.03 per share, respectively. This is just another factor of analysis that verifies ongoing accomplishment for Costco. With respect to the business and investment community, the income statement provides a basis to determine a company's profitability, the value of its investments, and overall creditworthiness. As we can see, Costco has shown continued success over the last few years. Even when involved in such a competitive environment with stores such as Wal-Mart and Target, Costco still provides excellent trends and figures for investment purposes